Sale of Real Estate by factual resident of Canada income Tax Help on the Web re cross border investment and mutual fund investme

My_question_is: Canadian-specific   I need cross border income tax help

question: I have been working/living in the US for past 5 years and for all the previous tax years (2004-2007) I was considered as a factual resident based on the fact that I owned a Condominium and my intention to return. For tax year 2008, I intended to maintain my factual residency by returning to Canada as the job situation was turning uncertain. However following events took place -- I sold my property in February 2008, Got a new job, and got married to Indian citizen who lives with me in the US. Based on the definition it appears that somewhere in 2008 I lost my ˜significant residential ties™ and am a non resident. Now the question: what are the tax implication for the property which I sold early in 2008. The property was vacant for entire 2007 and rented 2005 and 2006 (I reported the rental income).



david ingram replies

Providing you did not depreciate the house when rented, the house should be tax free under Section 45(2) of the tax act.
Go to www.centa.com and read the next question to this one about 45(2) elections or search '45(2)' for over 100 more references on 45(2).

You may have been a factual resident of Canada because of the home you kept here but being a factual resident does NOT make you taxable in Canada on your US income of you are in a Treaty Country like the United States.  article IV of the US Canada Tax treaty takes over and you are only taxable in one country on your world income.  In your case, if you  were living and working in the USA, you would be taxable in the USA on your world income including the Canadian rental.

Your Canadian tax return would report the world income as well but would deduct the US income (including and US interest, dividends, royalties, etc.) on line 256 under Article IV of the tax treaty

You might want to follow up on this with a call to my web television program.

I will be taking calls next Wednesday at 7 PM  (Vancouver or LA time) on US / Canada Income Tax and Immigration help as follows.


If you want a free answer for a couple of minutes, remember that you can call my WEB program every Wednesday Night from 6 to 8 or 9 PM at www.david-ingram.com

a call to 1-866-980-0499 will be answered if it is a short question between 6 and 8 PM for sure and to 9 if we are busy.  Calls to Kay should be from 6 PM to 7 PM and tax and immigration questions at 7 PM.

This next Wednesday,   my Guest from 6 PM to 7 PM will be Kay Ackles, widow of Bobby Ackles,  who passed  away in July 2008.  Bobby, of course, was the General Manager of the BC lions and former General manager of the XFL's Las Vegas Outlaws before returning to Vancouver where he had started as the Water Boy.  In between, he worked with the Dallas Cowboys, Philadelphia Eagles, Miami Dolphins, and Phoenix Cardinals in the NFL.  Her story as the wife who did all the entertaining, etc., is fascinating.  Their son, Scott Ackles is now the President of the Calgary Stampeders.

These older questions should help as well. Note that they deal with married people as well.

You should likely get some good tax help to do the 2008 returns.  You will need to do a departing Canada return now to state your new situation.

We can look after those by snail mail, email, fax or courier.  Congratulations on your new relationship and changed circumstances.  Make the best of it.

My_question_is: Applicable to both US and Canada
Subject:        Deemed non-resident and tax treaty question
Expert:         taxman@centa.com
Date:           Friday February 01, 2008
Time:           07:28 AM -0000

QUESTION:

Hi, I am currently working and living in USA. All my income comes from US employer. However, my spouse is living in Canada and she comes to USA to visit me bi-weekly. I am told by some tax specialist that I can be considered as deemed non-resident according to US-Canada tax treaty, thus I don't need to claim Canada tax. Is it true? Thanks.

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david ingram replies:

You are a factual resident and doing it right by having your wife visit you in the US rather than you fly home all the time.  Read on for more information.


My_question_is: Applicable to both US and Canada
Subject:        where do I file taxes
Expert:         taxman@centa.com
Date:           Wednesday January 30, 2008
Time:           01:33 AM -0000

QUESTION:

I have been living in the San Francisco since august 2005. I work for an American company. I fly home pretty much every weekend to Vancouver where my wife and kids live. I am on a H1B visa. Do I need to file in both the U.S. and canada every year or after this amount of time can I just file in the U.S.

--------------------------------------------------------------------
 
david ingram replies:

I am surprised that you are on an H1B.  I would have thought that the hotel would have transferred you on an L1 visa which is easier and faster for a manager with a multinational corporation.

If your intention is to stay in the US and you are waiting for your wife and children to join you, then you are a factual resident of Canada who has to file a Canadian return but would exempt everything on Line 256 under Article IV of the US / Canada Income Convention (Treaty). It helps in this case if your family flies down to join you in the US as often as you fly home.

If you are not intending to stay in the US and are just there for a short time and your family has no intention of moving, you are likely taxable in Canada because you are really commuting to a job in the USA.

You would likely do well to spend a few dollars and spend an hour with me.  The difference is thousands because you get to file a joint return in California.

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This older question will help as well


My_question_is: Applicable to both US and Canada
Subject:        Taxation
Expert:         taxman@centa.com
Date:           Wednesday January 16, 2008
Time:           08:37 PM -0000

QUESTION:

Hello There,
I was wondering if I could get some guidance.
I had left Canada in 2000 to work in the US on an LI (spec knowledge)Visa. I had lived there and work there and still do since then. However in 2002, My wife pursued her grad studies in BC,Canada and we exchanged visits.
Here are some facts:
1. I spent more than 10 months in the US (for residence determination).
2. I have had permanent residences in 2 separate states in the US all these years.
3. I have filed and paid US taxes and have been deemed a US resident for tax purposes.
4. I have maintained a bank account in Canada to pay for my wifes Tuition.
5. Every year since 2001 at Canadian Tax time (when my wife files her Canadian Tax return), I call revenue Canada and give them these facts and asked them if I have to file a Canadian Tax return and they respond with a No I do not have to do anything. However they ask me to call the International tax office and confirm. I do just that and they respond that I do not have to do anything as i am not a resident. (I wish I had taped them).

In any event I have recently received a letter from CCRA stating that I owe taxes from 2002-2006. I have informed them that i am a resident of the US for tax purposes. However because of my significant ties (My Wife, and bank account) I have been determined to be a factual resident.
Here are my questions.
1. What form do I need to fill out?.
2. Do they expect me to declare all my US income, after converting it to Canadian dollars (when I did not have the luxury of using all that converted amount which was very high in the former years), as I had spent most of it in USD living in the US.
3. How can I be a resident of two separate countries for tax purpose that have a tax treaty?.
4. CCRA refuses to listen to my questions (besides trying to find out what form to fill out) and simply states that in spite of being  a US tax resident, due to my significant ties, i am a factual resident of Canada and have to file and pay the horrendous amount of taxes assessed. I checked all the forms and they are correct
5.
6. I have a CCRA collections officer chasing me, while i am trying to get answers to my situation.
What are my options besides filing, which I intend to do as I do not want to face criminal charges.
Any help or advice would be appreciated.

Thanks and Cheers
--------------------------------------
david ingram replies:

I agree that you are a factual resident of Canada BUT, and it is a BIG BUT, you are A FACTUAL RESIDENT SUBJECT TO THE BENEFITS OF A TAX TREATY as described in the government's own T1 General guide.

For the 2005 year it is the top left hand paragraph "D" on page 10.

1.    File the Canadian returns and report all of your income and exempt it all on line 256 under Article IV of the US / Canada Income Tax Convention (Treaty).
.
2.   yes

3.   You can't be under the treaty  - However, intent is important.  If your wife is just studying and intending to move to the US when finished and you have a green card application in process, you are absolutely (in my opinion) only taxable in the US.  It also helps if she spends as much or more time visiting you in the US as you spend coming up to Canada to visit her. I tell people in your position to stay out of Canada and have your family visit you in the US.

4.    I disagree if you are intending to stay in the USA.      -- If, on the other hand,  there was never any intention to stay in the USA and you are intending to come back to Canada in a year and your wife never visited you in the USA and you made no effort to get a green card, the CRA might have a point but only might. Your physical presence in the US clearly makes you a taxable resident of the US. Your job means that your financial affairs are in The US.  It would help if you had filed a factual return each year since you left.

5.   ??

6.   That is his job.  Hopefully, the arbitrary assessments they have sent you are new enough you can file formal notices of objection - i.e. within 90 days of their issuance.

Get the returns done ASAP.  Glad to to do them for you if necessary.
-------------------------------------------------
Dear David,
 
My wife is going to work in the US. We have been married for 7 years and have a 20 year old daughter (I adopted my wife's biological child) who will be studying in the US for that period.
 
I am going to remain in Canada and we plan to visit each other during our holidays.
 
Is there any way my wife can pay taxes only to the US during this period? we would like to make an appointment with you to hear the details ASAP as we need to make a go or not go decision based on the answer.
 
Regards
 

--------------------------------------------

david ingram replies:

If you were separated, there would be no problem. 

However, as a married couple, the CRA will want to tax your wife on the basis that her family ties are in Canada BUT is she has her daughter with her AND if  'you' visit her in the US four times to one rather than her "coming home' every couple of weeks, she should be considered factual resident of Canada whose US income is exempt from Canadian tax under Article IV of the US / Canada Income Tax treaty.

Article IV of the Treaty reads as follows:

Article IV

Residence

1.  For the purposes of this Convention, the term "resident" of a Contracting State means any person that, under the laws of that State, is liable to tax therein by reason of that person's domicile, residence, citizenship, place of management, place of incorporation or any other criterion of a similar nature, but in the case of an estate or trust, only to the extent that income derived by the estate or trust is liable to tax in that State, either in its hands or in the hands of its beneficiaries. For the purposes of this paragraph, an individual who is not a resident of Canada under this paragraph and who is a United States citizen or an alien admitted to the United States for permanent residence (a "green card" holder) is a resident of the United States only if the individual has a substantial presence, permanent home or habitual abode in the United States, and that individual's personal and economic relations are closer to the United States than to any third State. The term "resident" of a Contracting State is understood to include:

    (a) the Government of that State or a political subdivision or local authority thereof or any agency or instrumentality of any such government, subdivision or authority, and

    (b)

      (i) a trust, organization or other arrangement that is operated exclusively to administer or provide pension, retirement or employee benefits; and

      (ii) a not-for-profit organization

    that was constituted in that State and that is, by reason of its nature as such, generally exempt from income taxation in that State.

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

    (a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him; if he has a permanent home available to him in both States or in neither State, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests);

    (b) if the Contracting State in which he has his centre of vital interests cannot be determined, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;

    (c) if he has an habitual abode in both States or in neither State, he shall be deemed to be a resident of the Contracting State of which he is a citizen; and

    (d) if he is a citizen of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

3.  Where by reason of the provisions of paragraph 1 a company is a resident of both Contracting States, then if it was created under the laws in force in a Contracting State, it shall be deemed to be a resident of that State. Notwithstanding the preceding sentence, a company that was created in a Contracting State, that is a resident of both Contracting States and that is continued at any time in the other Contracting State in accordance with the corporate law in that other State shall be deemed while it is so continued to be a resident of that other State.

4.  Where by reason of the provisions of paragraph 1 an estate, trust or other person (other than an individual or a company) is a resident of both Contracting States, the competent authorities of the States shall by mutual agreement endeavor to settle the question and to determine the mode of application of the Convention to such person.

5.  Notwithstanding the provisions of the preceding paragraphs, an individual shall be deemed to be a resident of a Contracting State if:

    (a) the individual is an employee of that State or of a political subdivision, local authority or instrumentality thereof rendering services in the discharge of functions or a governmental nature in the other Contracting State or in a third State; and

    (b) the individual is subjected in the first-mentioned State to similar obligations in respect of taxes on income as are residents of the first-mentioned State.

The spouse and dependent children residing with such an individual and meeting the requirements of subparagraph (b) above shall also be deemed to be residents of the first-mentioned State.

----------------------------------


Under these circumstances, she can even file in the US as a head of household (with a non-resident non US citizen spouse with no US income) which will give her a very good US tax rate.

Phone Gillian Bryan or Peter Ingram at 604-980-0321 between 10:30 and 4 PM to make an appointment to see me if you wish.  Pricing, etc., follows:

The standard disclaimers apply to this question. 


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--
IRS Circular 230 Disclosure:  To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.--

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Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation  in connection with personal or business affairs such as at www.centa.com or http://www.david-ingram.com/staticpages/index.php/GaryGauvin.  If you forward this message, this disclaimer must be included." -



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